Thursday, September 5, 2013

New DOJ Policy Doesn't Change Taxes for Marijuana Businesses

The DOJ's announcement that it does not plan to prosecute
individuals and businesses in states that have legalized marijuana has many in
Washington breathing a sigh of relief. Unfortunately, the federal response does
little to change the IRS's opinion of the pot industry. While there has been no
IRS announcement regarding the legalized marijuana industry, there is no
indication that they plan to lay off the tax attack they have levied against
marijuana income.

Some say that the federal tax situation is perhaps the
biggest threat to the legalized marijuana business and could force the entire
industry underground. Businesses that are not allowed to take tax deductions
are caught paying hefty taxes and subject to IRS audits and scrutiny. Yet if
the federal government wants to prevent an underground or black market from
emerging, they need to treat legalized marijuana as a business—in every sense,
including taxes.

If the IRS allowed marijuana businesses and growers to
operate as legal businesses, then those owners would be allowed to deduct
business expenses, such as rent, salaries, and other expenses. As it stands
now, they are not allowed these important deductions, but are still taxed on
the income they receive

There are currently a few ways around the IRS taxes;
however, none of them are ideal and create headaches and potholes for newly emerging
marijuana businesses. Some have chosen to run other businesses and sell
marijuana on the side, other have toyed with operating as a nonprofit social organization
or a cooperative. Unfortunately, unless the laws change quickly, it seems that the IRS could doom an entire industry before it even begins.